Dec. 10 (Bloomberg) -- Christie Hefner, former chief
executive officer of Playboy Enterprises Inc., said she was
shocked as her husband of 15 years, William Marovitz, confessed
to her that he was being investigated for suspicious trading in
Playboy shares. They were in their apartment atop a 42-story
Lincoln Park tower overlooking the glittering Chicago skyline
and Lake Michigan on a March evening in 2010.

“He told me he had been contacted by the SEC,” Hefner
said later in testimony before the U.S. Securities and Exchange
Commission, which didn’t accuse her of any wrongdoing.

“And when did you learn your husband owned shares of
Playboy?” she was asked.

“In that conversation,” she replied.

Hefner’s husband is just one of more than 400 people the
SEC and the U.S. Department of Justice have accused of insider
trading in a crackdown in the last five years, according to data
compiled by Bloomberg. All involved betrayal -- of clients,
employers, relatives or friends. The Hefner episode and a
handful of cases like it include an especially cruel breach of
trust: betrayal of a wife by a husband.

The husband’s perfidy produces not only financial loss for
the couple as fines have to be paid and illegal profits returned
but also a loss of reputation for the wife and sometimes her
job. In the worst outcome, the couple breaks up.

“The popular notion is betrayal in terms of sexual
infidelity,” said Thomas Ajamie, a securities lawyer who runs
his own firm in Houston, Ajamie LLP. “Another type is the
betrayal of trust that destroys the marriage partner’s
reputation, or career.”

First Revealed

The intimate details of Hefner’s case are recorded in SEC
interviews with her and her husband, revealed here for the first
time, based on transcripts obtained by Bloomberg News through a
Freedom of Information Act request.

The move of insider trading from the boardroom into the
bedroom in cases like Hefner’s is one indication that the crime
has become so pervasive that even people with significant assets
figure it’s like bending down to pick up a quarter on the
street. A spike in criminal convictions and SEC enforcement
actions in the last five years shows the U.S. government does
not share that blasé attitude toward a crime that cheats other
investors.

“The SEC is determined to send a message to big investors
as well as Everyman that insider trading is against the law and
is not going to be tolerated,” said Marc Powers, a former SEC
attorney now with Baker & Hostetler LLP.

Betrayal

Nina Devlin’s husband brought some friends into the
conspiracy of his insider-trading duplicity. She was a partner
in the New York office of Brunswick Group LLC, a London-based
communications firm specializing in mergers and acquisitions.
Her husband, Matthew, was a broker for Lehman Brothers. At least
12 times starting in 2004, he shared with a circle of friends
information he had overheard from her about corporate takeovers,
according to an SEC complaint. Among this group of insider
traders, Devlin’s wife became known as “the golden goose.”

In an April 2005 e-mail, one conspirator told Matthew
Devlin, “We need the goose to pop its head out and show us the
biz.” All told, the ring netted $4.8 million in illicit gains,
according to the SEC. As for Devlin, his profit was negligible:
$23,000 in gifts and kickbacks from his buddies.

FBI agents confronted Matthew Devlin in August 2008. He
confessed to his wife, who was pregnant. Matthew Devlin agreed
to cooperate with the government. Four months later, Nina
Devlin, 38, gave birth to a son, born prematurely, according to
court documents. At Devlin’s sentencing earlier this year, Nina
pleaded on his behalf.

Shocked, Devastated

“I was shocked and devastated when I learned of my
husband’s actions in the summer of 2008,” Nina Devlin wrote in
a letter to U.S. District Judge William H. Pauley III. “I
suffered severe repercussions from them nonetheless, including
the loss of a job I loved and severe damage to the reputation
and career I had worked for more than a decade to build.”

Judge Pauley granted Matthew probation, but not before
summing up what he had done: “He betrayed the trust of Lehman
Brothers, his responsibility to his profession and he betrayed
the trust of his spouse, all of it completely tragic and
senseless for a sum of money, to his benefit, that was a
rounding error in his compensation.”

Matthew Devlin’s lawyer, Mary Mulligan, declined to
comment.

Dodged Questions

Lorene Hipp was an executive secretary at Seattle-based
insurer Safeco Corp. She followed orders when management told
her the company was about to be sold and made her sign a
confidentiality agreement. In April 2008, her husband, Math
J. Hipp Jr., asked Lorene why she was suddenly working overtime
and weekends.

“His wife dodged his questions, stating she could not talk
about it or was particularly busy at work,” according to the
SEC. “She also told him she was concerned Safeco employees
would lose their jobs, but she would not tell him why.”

Hipp, an engineer, bought 127 call options on Safeco stock
that month, betting the shares would jump. They did when a sale
to Boston-based Liberty Mutual Group Inc. was announced, and he
made $118,245 in illicit profit, the SEC said. Safeco fired
Lorene Hipp, said her lawyer, Lawrence Cock, even though the SEC
ultimately determined she’d never breached her agreement to
remain quiet. Math Hipp settled SEC insider trading charges in
May 2009 without admitting wrongdoing. He agreed to pay twice
the sum he made on the transaction, plus interest, for a total
of $239,771. His attorney, Christopher B. Wells, said Hipp has
no comment.

Pillow Talk

Couples sometimes share pillow talk about work, of course,
but the wives victimized in these insider cases made it clear
they didn’t expect their spouses to trade on it in the morning.

Jason Hanold’s wife, Neela Seenandan, was an executive in
the Chicago office of London-based Aon PLC. in July 2010 when
she learned that the company was about to acquire Hewitt
Associates, a provider of payroll and consulting services. On
July 6, she told her husband that an announcement was imminent.
She followed up with two e-mails warning him not to share the
information.

He responded with an e-mail, saying, “I won’t, no need. I
only wish we bought their stock!!!”

Scottrade Account

The next day, Hanold deposited $28,500 into his Scottrade
account, which had a cash balance of $0. He bought 831 shares of
Hewitt at $34.25 each, or $28,476. After the deal was announced,
he sold them for a $10,241 profit, according to the SEC. Hanold
settled without admitting wrongdoing, agreeing to pay twice the
amount of his profit and $284 in interest, for a total of
$20,766. Hanold didn’t respond to phone messages and e-mails
seeking comment. Seenandan didn’t respond to a phone message.

The Hefner-Marovitz case stands out among these betrayals
of wives by husbands, mixing love and treachery with wealth and
power. More than most, it raises the question: What in the world
was he thinking?

From 1988 through early 2009, Hefner, 60, ran Chicago-based
Playboy Enterprises, the company founded in 1953 by her father,
Hugh Hefner, who took it private in 2011. She expanded the
magazine publishing company into cable programming and digital
media and attempted to reenter the gambling industry. “Billy”
Marovitz, 68, whom she began dating in the early 1990s and
married in 1995, seemed the ideal soul mate.

Prominent Family

A former state senator from a prominent family of Chicago
Democrats, he and Hefner shared interests in progressive causes.
After leaving public service in 1993, Marovitz became a real
estate developer in Chicago and a limited partner in investment
groups behind local restaurants.

Even before they were married, Hefner relied on Marovitz
for business advice. In 1993, he brought Hefner a plan to
develop a casino in Greece; she and the board approved the idea
and encouraged him to pursue it. Over the next six years,
Marovitz helped broker the opening of the Playboy casino in
Rhodes, for which he was paid a total of $310,000, as well as
travel expenses, according to Playboy proxy statements.

On several occasions after they were married, her husband
made casual remarks about buying Playboy stock. In her SEC
testimony, Hefner said she warned Marovitz against doing that.
In 1998, she went a step further, according to the SEC complaint
in the matter, assigning Playboy’s general counsel, Howard
Shapiro, to spell out the consequences Marovitz and his wife
would face if he began trading Playboy shares.

‘Legal Minefield’

Shapiro prepared a memo for Marovitz, himself a lawyer,
outlining the “serious implications” of his trading in Playboy
stock, according to the SEC. He warned him that “all SEC rules
regarding Christie’s sale or purchase of stock are equally
applicable to you, particularly the rules governing insider
trading” and “your purchase is imputed to Christie.”

In the memo, Shapiro urged Marovitz to “give me a call and
I’ll walk you through the legal minefield.” Marovitz never
called, according to the SEC, which cited the memo in its
insider-trading complaint against him.

“I always felt that he should never buy or sell Playboy
stock as long as I was CEO,” Hefner testified. “Just the fact
of it struck me as wrong.” She also said: “I didn’t like the
optics of it regardless.”

The couple kept separate brokerage accounts throughout
their marriage, Hefner told the SEC.

“To the extent you discussed non-public matters regarding
Playboy with your husband, did you expect your husband to keep
those non-public matters confidential?” the SEC asked Hefner in
her deposition.

“Yes,” she replied.

She was mistaken, it turned out, according to the SEC.

First Betrayal

Marovitz’s first betrayal, as alleged by regulators, was a
small one. It came on April 15, 2004, around the time the
company was planning to issue new stock to pay down debt, a
transaction that might boost the company’s share price. Marovitz
purchased 5,000 shares. When the offering was announced on April
21, Playboy stock jumped 8 percent, resulting in a gain of
$2,806 for Marovitz, the SEC claimed when it sued him.

A few months later, on Aug. 5, Marovitz sold 25,000 shares
of Playboy stock, all of his holdings, which he had accumulated
without his wife’s knowledge and without consulting Playboy’s
general counsel. The day after the sale, Playboy reported a
second-quarter loss, and the company’s shares dropped 18
percent. Marovitz thus avoided $64,983 in losses, the SEC said.

Four years later, Marovitz was at it again, according to
the SEC, selling 14,700 shares of Playboy stock the day before
the announcement of a quarterly loss resulted in a 9 percent
drop in the company’s shares. That transaction helped him avoid
a loss of $11,507.

In Talks

On November 10, 2009, he bought 9,000 shares of Playboy
stock, two days before Bloomberg News reported that New York-based Iconix Brand Group Inc., which manages brands, was in
talks to acquire the company. The report caused Playboy stock to
rise 42 percent that day.

A month later, according to the SEC, he ordered his broker
to sell all of his 35,200 shares of Playboy stock just hours
after his wife learned that Iconix had ended talks with Playboy.
The SEC calculated that he gained, or avoided losses, of nearly
$22,000 through his Iconix-related trading.

‘Getting Documents’

A few months after the Iconix trade, an SEC attorney
visited Marovitz at his Chicago office to inform him that his
Playboy stock trading, conducted through Mesirow Financial Inc.,
was being investigated. According to Marovitz’s testimony before
the SEC, he visited his broker shortly after that meeting to
talk about “getting documents,” among other things.

Asked by the SEC what was discussed, Marovitz responded:
“Basically, I, I, I think I asked him if I had a right to, to
trade in Playboy stock, was there anything that, was there any
illegality between actually trading with Playboy stock. And he
said no.” Pressed about whether he had seen the memo about
trading in Playboy stock faxed by Shapiro in 1998, Marovitz
invoked his Fifth Amendment right against self-incrimination.

The revelation that Marovitz, contrary to her repeated
warnings, had been trading in Playboy stock stunned Hefner. The
SEC asked if she suspected her husband of acting on inside
information surrounding his trades.

“To the best of my recollection, I didn’t even think
that,” she testified.

Hefner’s first instinct was to stand by her man. According
to her testimony, she called a top Chicago lawyer to see “if he
had a very good attorney to recommend to my husband.”

SEC Hearing

Hefner and Marovitz retained James Streicker of
Cotsirilos, Tighe & Streicker, to represent their mutual
interests. It was only later in 2010, when Hefner received a
subpoena from the SEC asking for her testimony in the matter,
that she retained her own lawyer, Sheldon Zenner of Katten
Muchin Rosenman LLP.

On Nov. 8, 2010, Marovitz and Streicker appeared at the
SEC’s Chicago office to provide investigative testimony. Over
the course of 90 minutes, Marovitz declined to answer any
questions about his trading activity, invoking his Fifth
Amendment right 179 times, even to basic questions about whether
he knew anyone associated with Playboy Enterprises.

Regarding his conversations with his wife, Marovitz invoked
a “marital communication privilege,” which can bar testimony
by one spouse against another.

Three weeks later, Hefner and her attorney visited the SEC
office for her testimony. In contrast to her husband’s
appearance, Hefner spent the better part of four hours
describing her actions around the five dates on which the SEC
suspected her husband had been trading on insider information.
She said she would generally abide by the same marital
communication privilege that Marovitz had invoked.

Broad Questions

In response, the SEC attorneys posed broad questions about
the types of discussions she’d have with her husband, while
never asking her to divulge the contents of specific
conversations. Hefner testified that she occasionally shared
sensitive insider information with her husband, sure that he
would respect the confidentiality of their conversations.

When Hefner was asked why she was surprised when Marovitz
told her about his trading, she replied simply: “Because I had
every reason to believe that he would not have done that.”

Over five years of alleged financial infidelity, the SEC
calculated that Marovitz gained, or avoided losses, of $100,952,
He agreed to pay $168,352, including penalties and interest, to
settle the matter, without admitting wrongdoing.

‘Terrible Things’

How do couples survive that?

“Forgiveness isn’t all or nothing,” said Janis Spring,
clinical psychologist and author of “How Can I Forgive You? The
Courage to Forgive, the Freedom Not To.” “It doesn’t happen in
an instant. Good people can do terrible things. You weigh the
good against the bad, and you make a thoughtful decision. You
weigh all the things that this person has brought to your life
and how they enhanced your life and weigh that against what
they’ve done to you. And if they’re remorseful, it may make
sense to stay together.”

Not in this case, though.

Earlier this year, a few months after the settlement,
Hefner, now executive chairman of Tucson-based Canyon Ranch
Enterprises Inc., moved out of the couple’s condominium on Lake
Shore Drive into another Chicago apartment of her own, according
to property records. Hefner and Marovitz are now separated.